Code of Federal Regulations Title 26. Internal Revenue § 26.53.4965–1 Overview

(a) Entity-level excise tax.Section 4965 imposes two excise taxes with respect to certain tax shelter transactions to which tax-exempt entities are parties.Section 4965(a)(1) imposes an entity-level excise tax on certain tax-exempt entities that are parties to “prohibited tax shelter transactions,” as defined in section 4965(e). See § 53.4965–2 for the discussion of covered tax-exempt entities. See § 53.4965–3 for the definition of prohibited tax shelter transactions. See § 53.4965–4 for the definition of tax-exempt party to a prohibited tax shelter transaction. The entity-level excise tax under section 4965(a)(1) is imposed on a specified percentage of the entity's net income or proceeds that are attributable to the transaction for the relevant tax year (or a period within that tax year). The rate of tax depends on whether the entity knew or had reason to know that the transaction was a prohibited tax shelter transaction at the time the entity became a party to the transaction. See § 53.4965–7(a) for the discussion of the entity-level excise tax under section 4965(a)(1). See § 53.4965–6 for the discussion of “knowing or having reason to know.” See § 53.4965–8 for the definition of net income and proceeds and the standard for allocating net income and proceeds that are attributable to a prohibited tax shelter transaction to various periods.

(b) Manager-level excise tax.Section 4965(a)(2) imposes a manager-level excise tax on “entity managers,” as defined in section 4965(d), of tax-exempt entities who approve the entity as a party (or otherwise cause the entity to be a party) to a prohibited tax shelter transaction and know or have reason to know, at the time the tax-exempt entity enters into the transaction, that the transaction is a prohibited tax shelter transaction. See § 53.4965–5 for the definition of entity manager and the meaning of “approving or otherwise causing,” and § 53.4965–6 for the discussion of “knowing or having reason to know.” See § 53.4965–7(b) for the discussion of the manager-level excise tax under section 4965(a)(2).

(c) Effective/applicability dates. See § 53.4965–9 for the discussion of the relevant effective and applicability dates.